Good News and Not-So-Good News

Good News and Not-So-Good News

Article excerpt

Reading or listening to daily news reports these days is not for the faint of heart. Calamitous events include, but by no means are limited to, the violent political upheavals and threat of nuclear weaponry in the Middle East; the sovereign debt crisis facing member nations of the European Union; expectations that gasoline prices will soon approach $5.00 a gallon; the unprecedented violent weather in the South and Great Plains states; and the contentious political sideshow of this presidential primary season. The depressing news is ample reason to escape to a good book or to an alternative reality such as that captured by "The Simpsons."

Even the most optimistic news stories are cast with a thin veneer that belies a harsher reality. Since my last column, two such newsworthy items have caught my attention. At first glance, these reports appear to presage good news, but when examined more closely they reveal some underlying and deep-seated problems. Both items, either directly or indirectly, underscore the need for health reform. The first item is the much reported slowdown in health care spending in 2010; the other recalls the optimistic employment picture drawn from February's labor market statistics.

The Slowdown in Health Care Spending

As was widely reported in the media, the annual report on national health spending released by the Centers for Medicare and Medicaid Services (CMS) (Martin et al. 2012) disclosed that in 2010, health spending increased by only 3.9%. This statistic, and that for 2009, marked a watershed moment, representing the lowest spending increases reported by the federal government in the 51 years that such data have been collected. In addition, the report noted that overall spending as a share of gross domestic product (GDP) remained constant at 17.9%, and that Medicare spending in 2010 had increased by only 5%, the smallest increase in over a decade. However, upon taking a closer look at this apparent good news, it became clear that these changes were neither the result of enlightened public policies nor a byproduct of nascent health reform provisions.

The CMS report revealed that the reduction in spending growth was largely an aftershock of the Great Recession, attributable to high unemployment, the substantial loss in private health insurance, employer reluctance to hire and invest, and the lowest median real household income in more than 10 years. These changes, in turn, led to declines in individual demand for physician office visits, inpatient admissions, and emergency room use, as well as a reduction in the intensity of services. The decline in utilization also helped slow the growth in prescription drug spending, which often accompanies physician and hospital events.

One could certainly be tempted to put an optimistic spin on such reduced spending growth--that income-constrained consumers in consultation with their providers were seeking only essential services whose benefits were commensurate with their out-of-pocket costs. However, the more likely reality is that the loss of income and employer-sponsored health insurance for many individuals resulted in reduced access to essential health care services and the postponement of needed care. If this was the case, then the relatively small increases in health spending over the last two years had little to do with enlightened consumer and provider behavior or with a change in the persistent underlying factors that have driven health care spending. As a consequence, the decline in spending growth should not be interpreted as a meaningful reversal in longstanding trends.

Underlying Factors

When the underlying causes of high U.S. health care spending and its growth are considered, comparisons with other developed countries are typically invoked. In commenting on this issue, Reinhardt (2011) has nicely elucidated some key factors contributing to spending disparities between the U.S. …